Many managers (i.e., money managers or fund managers) of financial assets promote or advertise their services and/or funds in conjunction with a particular market sector or investing/trading style. For example, a fund manager may concentrate in one or more fields, such as emerging markets, small-cap technical funds, junk bonds, commodity options, etc. When a client provides capital to such a fund manager, the client has an expectation that any trades executed within the fund by the fund manager will be shared equally by all the clients in the fund, no matter how large or small the client.
Conventionally, when a fund manager executes an order for a fund, the fund manager determines the size of the order (for example, a buy order for 1000 shares of stock A) and pre-allocates the order to the clients associated with the fund (for example, 100 shares to client X, 300 shares to client Y, and 600 shares to client Z). As the order is executed, the shares are then distributed to the clients within the fund. An issue arises, however, when the order can only be partially executed (for example, only 600 shares of stock A are available at the desired price). In such a situation, partial orders are first distributed to the largest client within the fund and then to smaller clients within the fund. In the example, client Z would receive 600 shares of stock A.
A problem occurs if the partial order can no longer be executed (for example, the price of stock A has risen higher than the desired asking price) or the remaining portion of the order is filled at a different price than the price for the other partial orders. In the first instance, client Z receives 600 shares of stock A, whereas clients X and Y do not receive any shares. In the second instance, either client Z or clients X and Y receives shares at a higher/lower price than the other. In both instances, the desired goal of having all the clients within the fund share equally on the trades made by the fund manager is not accomplished since each client receives unequal portions of the trade. There is, therefore, a need to provide the capability to a fund manager to equitably allocate the results from trades made for a fund/account that includes multiple clients.